Turkcell Iletisim Hizmetleri AS (TKC) 2007 Q1 法說會逐字稿

Welcome to the First Quarter 2007 Results Announcement Call, on the 10th of May, 2007. Throughout today's presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. [OPERATOR INSTRUCTIONS].

I will now hand the conference over to Mr. Koray Ozturkler, who is Head of Investor Relations. Please go ahead, sir.

Thank you very much Vivia. I would like to also welcome you today on behalf of the management team here. We have the CEO and the CFO and rest of the management team ready for the conference call today.

I will start by our legal notice briefly, and then I will have few quick information for you before we get into the presentation.

This presentation may contain statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially because of factors discussed in this presentation, in our press release, in 20-F or in other reports and filings with the US Securities and Exchange Commission. We undertake no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

At this time, I will also like to inform you about two specific changes to our practice. Firstly, in an attempt to provide more complete picture for analysis purposes, starting this quarter, we will present our key performance indicators based on the year-on-year comparison as opposed to quarter-on-quarter, given more stable macro economic environment in Turkey and to eliminate the effects of seasonality in quarter-on-quarter analysis.

Secondly, we have decided to stop the practice of early release of our subscriber numbers on a quarterly basis, since we believe these indicators alone will not provide the complete story. And adjusting key operation around financial figures together during results announcements would be more beneficial for the reader than explaining the underlining performance of our business. Additionally, we feel there's lack of comparable data in the market due to different and limited disclosures of the market players. Therefore, disclosing timely and the complete picture, we feel is again better.

At this time, I will hand it over to Mr. Ciliv for his presentation.

I would like to welcome you all to 2007 first quarter financial results conference call. I am very pleased that we delivered solid operational and financial performance during the quarter. We recorded about $1.3 billion in revenues with a strong 14.4% growth on year-on-year basis. High revenues and improvement in our cost base resulted in higher EBITDA margin of 40%. EBITDA grew 24% year-over-year, and also contributing to our 45% year-on-year search net income to $272 million.

Serkan will further elaborate on the details of our financial results.

During the first quarter of 2007, we grew our subscriber base to 32.2 million with emphasis on our segment based value propositions. On the international front, Astelit in Ukraine with 5.8 million subscribers is achieving significant improvements in its operations. And Fintur operations with 8 million subscribers in total continue to generate good value for us. They delivered year-over-year growth of 38% net income.

Now I would like to comment on some of the key performance indicators. Moving to next slide, I believe we had a healthy growth of our subscriber base by 12% on an annual basis. The new subscriptions are the new record for any first quarter and I can say that I am quite typified with our presence in acquisition market.

We added approximately 484,000 net new subscribers in the first quarter of 2007, despite a slow start in the quarter. Two points; one, in January, we made improvements to our dealer incentive program. Two, acquisition campaign conducted during 2006 third quarter resulted in higher churn during 2007 first quarter, based on our churn policy.

New subscriptions acquired in this quarter consisted of 87% prepaid subscribers and 13% from postpaid subscribers ensuring an increase in terms of the percentage of postpaid subscriber acquisitions.

I am also very happy with the ongoing strong performance of our premium and corporate segments in terms of acquisitions and usage as a result of our increased value focus play.

Churn rate of 5.1% was mainly due to prepaid involuntary churn triggered by high acquisition campaigns in previous periods. When we look at the composition of our churners, is above 90% being prepaid and low ARPU generators, we can conclude that our efforts to retain our valuable customers is working. Our blended minutes of usage per subscriber in the first quarter of 2007 increased on an annual basis by about 9% to 63 minutes, mainly due to our segment based offers to youth segment and corporate customers.

Moving on to the next slide; during the first quarter of 2007, our blended average revenue per user remained almost stable at previous year's $12. This stability was mainly due to price adjustments and increased usage despite a 6% depreciation of Turkish -- new Turkish lira against US dollar and dilutive impact of growing prepaid subscriber base during the period.

I'm very pleased with the results of our efforts to increase ARPU on segment basis. As highlighted on the graph, postpaid's ARPU has increased about 6% year-on-year basis, thanks to our continued focus towards premium segment.

Now I'd like to elaborate a bit more on our value proposition which we believe are really making a difference in the marketplace for our customers.

On slide 7 -- and on slide 7, we are continuously highlighting our top five value proposition in the marketplace, as we constantly delivered new value-based offers under each category.

Continuously investing in our network and given our plans to invest approximately $480 million of additional CapEx this year, including planned 3G expenditures, we communicate our high quality and coverage capabilities to our customers on an ongoing basis. We believe we will carry on this advantage for our customers in the longer term.

We continue to provide the best advantage to our customers based on our large subscriber base and advantageous on-net tariff plans. We maintain our focus on customer satisfaction and loyalty targeting youth, premium and corporate segments during the quarter intensely. Especially, relaunch of postpaid voice strategies ensured higher usage of minutes and revenues, nicely contributing to our top line growth in ARPUs.

We further expanded on our thinking of value focus approach through improvements in our distribution channel network as well as customer care unit, which I believe is the best in Turkey. We view our distribution channel capability as strategic, our attention to our dealership network continued during the quarter. We have contributed to align our customer care unit through necessary improvement of our agents as well as further differentiating service levels by customer segments.

I strongly believe that churn customizations we carrying out in our channel, will further enhance our future competitiveness against our competition and we will continue to offer the best value for our customers in this area.

Additionally, we continue with our leading stance in technology with the widest range of products and services, gathered under single roof, Turkcell IM, our value added service portal. Our SMS data package offers encouraged high consumption, further helped build the stickiness we are looking for.

For the period, value added services in revenue contribution was 13% of our total revenues. We design attractive campaigns providing additional co-branded benefits to our youth club, and professional club members. So that the members enjoy advantages of being a Turkcell subscriber further integrating mobile usage to their daily life.

All in all, our distinctive value proposition enables us to extend our postpaid subscriber base in usage amongst them as well as maintain our overall leadership position in the market.

Now I will hand it over to Serkan for the financial analysis.

Good morning and good afternoon to everyone. We achieved pleasing financial results in the first quarter of the year, which I like to elaborate [with you]. Our earnings increased by 14% year-on-year to $1.3 billion in Q1 '07, despite the depreciation of Turkish lira against US dollar. This was on the backlog, including subscriber base and usage, including price and including contribution of our consolidated subsidiaries.

Our EBITDA in Q1 '07 increased by 24% year-on-year to $513 million, mainly due to increase in revenues, decrease in Treasury Share expenses and decrease in interconnection costs. Accordingly, our EBITDA margin increased by [inaudible] in Q1 '07 on year-on-year basis, reaching a pleasing 40% level. Mainly as a result of the improved EBITDA, we recorded 45% annual growth in net income to $272 million in Q1 '07.

Moving on to the next slide, despite increase in our revenues, in direct cost of revenues, it did not increase in parallel to revenues, mainly due to the change in the gross revenue definition since March 10, 2006, which resulted a decrease in our Treasury Share expenses. Year-on-year interconnection costs also decreased due to the revision of call termination rates, since July 2006. Consequently, the proportion of direct cost of revenues to total revenues, decreased by 6.253%.

Selling and marketing expenses in Q1 '07 increased by 12% on an annual basis to $232 million through higher marketing campaign costs and investments in our sales channel, a nice strength in the competitive environment. Net selling and marketing expenses as a percentage of revenues remained stable at 18%.

Our administrative expenses increased to $52 million in Q1 '07 on a year-on -year basis, mainly due to negative impact of Turkish lira generated costs and consultancy expenses, related to international investment opportunities. Nevertheless, the proportion of administrative expenses to revenues remained stable at 4%.

Compared to the Q4 '06, increase was due to a one time reversal recorded in Q4 '06, regarding the income accrual recognized for the success fee collected from BNP Paribas, related to the Irancell project.

Moving on to the balance sheet, our cash balance has increased approximately $1.9 billion at the end of Q1 '07, as a result of our ability to generate cash from our operations. Our total consolidated debt amounted to $579 million, as of Q1 '07, $463 million of this amount was related to our Ukraine operations.

As of the end of Q1, on our total consolidated debt to annualized EBITDA ratio was at 0.28, which verifies our flexibility of leveraging the balance sheet when needed.

Moving on to the cash flow, in Q1 '07, we invested $130 million in CapEx, of which $50 million was in Ukraine. Other item includes, frequency usage fee for prepaid subscribers in Q1 '07. However, [spent] in equal amount for the whole year.

Our cash position at the end of Q1 '07 reached $1.9 billion. Currently, after making procreative $412 million dividend payments in April, our total cash balance is approximately at $1.8 billion level.

We are committed to manage financial market risks in the context of our business strategies. Turkish economy has been steady for the last couple of years. We are aware of potential uncertainties, which may arise in financial markets due to the elections in 2007. Accordingly, we pay significant attention to liquidity and currency risks in line with our treasury management policies.

Currently, we have around $300 million net forward US dollar purchase contract. It's an average at a fixed rate of 1.41 for the rest of the calendar year and around 60% to 65% of the current cash balance is in [inaudible] currencies.

Moving to Fintur slide. Fintur, our associate, in which we hold a 41.45% stake, grew its number of subscribers to approximate 8 million in the first quarter of 2007. Fintur operations in Azerbaijan, Kazakhstan, Georgia and Moldova continued to generate value and deliver strong revenues with high year-on-year growth in Q1'07. We are very pleased with Fintur efforts in those markets.

In the first quarter of 2007, the income that Turkcell recorded based on the equity pickup method totaled to $22 million.

Now, I will elaborate on the Ukrainian market. Our affiliate, on the Life brand continued to achieve encouraging results in Q1 '07. As it can be seen on the slide, around 60% of the subscriber base is three-month active. three-month active ARPU in Q1 '07 increased by 55% year-on-year, and reached a $4.3, highlighting the pickup from minutes of usage and more subscriber stickiness to our improved operations.

During Q1 '07, Life recorded a net revenue of $43 million and a pleasing year-on-year growth rate of around 150%. In December 2005, a long-term financing package was obtained by Astelit amounting to $540 million that consisted of a syndicated senior loan of $390 million and a junior loan of $150 million.

In April 2007, Astelit finalized discussion with the members of the senior syndicate facility, and proposed it's restructuring.

As we indicated earlier, as an indication of our confidential Astelit operations, we have agreed to purchase the loans and the commitments held by lenders that do not consent to the restructuring proposal of Astelit. As of today, it is likely that we will take over the majority of the syndicated senior loan of which $369 million was utilized. The restructuring is expected to be finalized in the third quarter of 2007, and Astelit intends to refinance this debt to Turkcell within the next 18 months, depending on the market condition and its performance.

As shareholders, we are fully supporting our Life [inaudible] and with the direction to ensure this fundamental [inaudible] model we are looking for in a highly competitive market. Thank you.

Thank you Serkan. Vivienne, at this time we are ready to pursue with the Q&A session. If you could please open it up for the Q&A session.

Thank you very much sir. [OPERATOR INSTRUCTIONS]. Thank you. The first question is from Mr. Istvan Matetoth. Please state you company and then your question.

Good afternoon gentlemen, this is Istvan Matetoh from Credit Suisse. I have two quick questions. The first one is, I calculate a very sharp increase in the average nominal quarter surprising in Q1, if you compare it to Q4 and Q3. And I mean, do you think that this is a one-off and which is a further price erosion or do you think that now the pricing environment is very benign and all the operators are doing [amount] increases and that's when this pricing levels will remain at the current level. And the second one is on the strategic importance of distribution. Do you think that the value of all these assets will continue to appreciate, and will become more important? And you will see some cost and pricing inflations from this, particularly today I think we had news about the tariff deal, if you could comment on that, please?

Istvan, thank you for the questions. I will start with the first question, which was regarding the tariffing. From an average revenue per minutes of usage perspective, the Q1 is better than last two quarters of 2006. Mainly, we are seeing a rational play being continued in the market. The new campaigns and introductions we are seeing in the competition do apply -- prices actually increases effectively, as they are trying to move from more of their second based billing to minute based billing plans and moving some of their subscribers to these more chargeable minute campaign. That's why we do expect this rational play to continue. And as we have highlighted, during the beginning of the year, we did not expect -- we don't expect a major ARPU deterioration this year.

We have made a price increase of -- in December, last day of December, and the 7% was actually affected in Q1. In March, we had about 6.5% increase across corporates, but its affects we haven't seen yet, better it be in the next quarter or so. That's how we see the pricing environment based on market conditions. We will obviously follow the market closely.

On our distribution structure, we are quite widely established. We are doing a lot of things from our side as for managing the distribution channel in terms of communication of the value propositions. And making not only exclusive channels, dealers effective, but below those 10,000 some dealers are also very effective working on behalf of Turkcell. So, today, we wouldn't be able to tell you any impact coming from this new news. Obviously, we will continue to keep our edge in this area with our efforts.

Okay. Thank you very much. Correct. Thanks.

Thank you.

Thank you. And the next question is from Mr. Sean Gardiner. Please state your company and then your question.

Yes. Morgan Stanley. Just on the churn. Can you just, sort of, indicate whether your churn has peaked in the first quarter of 2007? And whether you think it will go higher based on the second half activities from last year? And then secondly on the Ukraine, can you give us an update where you are in terms of subscribers on the -- or you would need $4 package as you launched in, I think, November last year, if I remember correctly?

On the churn side, we have 5.1% of churn, which is higher on quarterly basis. When we compare it, but beginning of the year we did say that we do expect actually an increase in churn from 14.7% of last year's churn average. So, at about this rate, quarterly basis, we could foresee churn going forward. Obviously, we are doing a lot of things to prevent churn. And we are increasing our focus on retention side, especially with our premium and of course at corporate segment.

And needless to say, we have actually recorded better results, whether its postpaid acquisitions or minutes of usage increases or ARPU increases on the postpaid side. So, we are happy with the retention and the leverage. Our low ARPU generators, prepaid segments, mainly above 9% as we said is prepaid, involuntarily churned by us based on our churn policy. So, we think there will still be a controllable environment this year from a churn perspective. On the Ukraine side, we are quite happy with the -- now, I would just like to add before we move to Ukraine. I think it is important to note that most of the churns are coming from prepaid and low ARPU subscribers. So, we are pleased that our postpaid subscribers and high-value subscribers are in control. Thank you. Next please.

And just on the churn. So, is the worst ever for the churn. It's not going to go any higher. Is that correct? You are saying it's going to run from here. Or do you think there's a chance of edging up?

We shouldn't be so specific on the level of churn. We are still saying higher than last year, but we don't expect this significant jump either, in general speaking and cost revelation.

Thank you.

From Ukraine perspective, we are very happy with the operations and popularity of the free-life campaign. Now, the subscribers of free-life has reached to millions, several millions. So, it is generating the necessary per subscriber revenue not only on the voice side, but through internet packages that we are offering. And as you see, the active subscriber base is increasing and our focus is in the very right track.

Does that mean that your CapEx is potentially at risk, if you got these free -- or you can need packages not free but $4 weekly package?

We are estimating a budget of $150 million about for this year and based on subscription and minutes and uses trends we are seeing, so we don't see a reason to revise that at this time. Obviously, always we said in case of Turkcell, if there were a major opportunity for more revenue generation, we could spend more. But at this time, this is a reasonable level of CapEx.

Thank you, alright.

Thank you.

Thank you. The next question is from Mr. Jean-Charles Lemardeley. Please state your company and then your question.

Yes, it's JP Morgan. Just going back to the subscriber figures for first, the numbers that have been rumors for net assets are seeming real for this first quarter are quite significantly ahead of yours. Can you -- do you think there is any reason why we should question the quality of the subscribers that those two companies are adding at this point? Or it has really been a big drop in your share of your gross additions reflecting a change in the competitive dynamics there?

And the second question is on your traffic. Is there been a significant change in your distribution of traffic between -- particularly, has there been a big -- significant increase in interconnect -- mobile-to-mobile interconnect particularly now that those companies are gaining I guess some markets share?

Now, first on the churn question. We explained that we had a slow start in January because of the introduction of new dealer incentive program. But then, we had record number of new subscribers for any Q1. And I am very pleased with the progress we have made after January throughout the quarters. Now, we are a public company and we have established churn policies and we are very conservative about our subscriber base and we turn inactive subscribers into churn automatically after a certain period.

Our competitors have different policies and so I can't comment on their policies. But sometimes maybe comparing apples and oranges and every company has their own churn policy. And they are not -- some of these competitors are not public companies and their policies maybe very different than ours. So, I wanted to point this out. Anything you would like to add?

As a complement to what you just said is, we've seen also during Q1, a practice of free SIM card distribution in the market. We are not adopting that practice. Generally, the position of the company is especially on the startup package pricing is at least equal or betters higher pricing to competition. That's where the value play comes into play. We frankly get our new subscribers to payer subscriptions on board. And we are happy with the positioning of the company in the acquisition side from that perspective. On the traffic side, we do not see major trends that we can tell you, that's changing actually. On the interconnection side to give you an indication 8% of our revenues during the quarter come from interconnection revenues and majority of the traffic obviously is all on the -- on net traffic.

So the proportion of interconnect seems to be actually doing down a bit from -- it was a little higher in the past, not much, but a little higher, right?

John, I will like to add that three months ago we announced that our focus would be to business and protecting our good customers versus playing subscriber games and we are focused on creating value for our customer and making sure that we are delivering disciplined fiscal financial results. So we will continue to be focused on retaining good customers and deliver -- and continue to build profitable business. That is our main focus and obviously we care about our customers and we are going to defend our good customers. But we are -- we announced three months ago that we are not going to be focused on just the subscription numbers or this or that because there are different -- competitors are using different formulas to calculate their numbers.

Thank you very much

Maybe a quick clarification, John, although you are down with the question, on the follow-up with interconnection. The slight decline of the revenue is related to change of fee structure on the interconnection side, and we'll look at them. So the usage on the interconnect, we are seeing stable trends. Given the price declines, actually as well as the revenue base, cost base has shrunk a bit, that's the impact.

With interconnect; is it share of your minutes as a proportion of staying roughly the same?

Yes, roughly the same levels.

Thank you very much.

Thanks.

Thank you. Sir, the next question is from Mr. Steven Pettyfer. Please state your company name and then your question.

Thanks. Merrill Lynch. Couple of questions. Firstly, just looking at your postpaid ARPU, which I think you calculate in lira terms, increased 12% year-over-year. And I just wondered if that's -- given that you are saying that some of the price rises 'haven't come through yet. Whether that sort of growth is sustainable, indeed a few things, 'that's just a reflection of the underlying economic trends in that segment. And then secondly, turning to your cash pile, I was wondering -- following the news from Bulgaria that doesn't seem to be going forward. Do you have anything else on the agenda that you'll be looking to use the cash forward and if you could give us an update in your thinking in terms of the use of cash? Thank you.

With the ARPU question on TL terms, actually we've said it in the presentation that the ARPU on a blended basis increased 5% in TL terms year-on-year. And we actually have a postpaid increase. I can't give you a percentage right now I don't have it in front of me. But mainly it's coming from the corporate side, the growth from the corporate side and specifically in postpaid and the tariff increase. So, the flat dollar blended ARPU, it's a slight decline and potentially a growth in TL term ARPU guidance is still valid.

Okay, Koray, if I can just stop you there, the postpaid is up 12% in lira terms. I am just wondering if that contract postpaid ARPU growth is -- you think a reflection of good things going on in the economy.

We can't look at that, but I will just point out that in the dollar terms it is up 6% compared to last year.

Right. And 12% in lira terms which is --

The conception is increasing. We had a lot of specific package offers to our premium segments. Therefore, from an ARPU perspective on the postpaid, it has been beneficial and we also add the tariff increase to this equation basically. And if we may go through the use of cash question?

I'll take this one. So, it is clear that we are not going to be a leader in the Bulgarian telecom tender. This is another, I think, great example of Turkcell being very disciplined in these tenders and being a value player and we are not being -- we are not taking unnecessary risks or we are not stretching ourselves too thin, we are valued players and we want to make sure that we are creating value even when we are buying these operations. And we have six international operations. We are pleased with the progress in that area. We are going to look for opportunities, but if there is anything significant we would have announced it already.

So, as a follow-up can I just ask, does that mean that you will be retaining the cash for the foreseeable future?

We are still looking at opportunities, we can't say we are exhausted. We are just saying, we are not sorry for the missed opportunities because we have not paid high prices for this. So, we are more of a value shopper and we will continue to look, we can not say we are exhausted, there are a number of things we are following up, but nothing is concrete -- concreting us that we can relate we should disclose.

Okay.

I think we will continue to look at investment opportunities in Turkey and outside Turkey.

Thank you.

Thank you. The next question is from Mr. Sergei Arsenyev. Please state your company and then your question.

Good afternoon, Sergei Arsenyev from Goldman Sachs. Can I just -- the first question, can I ask a follow-up on the previous one on acquisitions? And just -- in the recent, whatever it was, you participated in Egypt, in Saudi Arabia, Bulgaria, Greece, all of this sounds like a foreign tour, and I think that it's pretty clear that the value criteria that you have got, are sort of diverted from the current reality. Do you think that going forward you will get better terms in some of the assets that will be coming up or would it just be maybe just better overall from -- for everyone if you just return, I guess, to the shareholders in the current environment? And my second question is on Ukraine.

I am sorry, I couldn't hear some part, a critical part of your first question. What did you say about our value proposition? Our value --

My question is whether in this environment where the telecom assets are so pricy, wouldn't it be better to just return the cash to the shareholders and contemplate on your core business, given how high the prices are and that you've missed out on many opportunities because of the price?

And the second question is on Ukraine and I'm just wondering whether you can comment on the pricing environment in Ukraine and whether you will characterize the pricing environment as a price war, as an effective price war there and what developments do you see towards the year end? Do you see an end to this very aggressive pricing behavior by all of the participants in the market or do you expect that to continue?

First of all, just I think last month we paid $450 million of dividends, so we returned a substantial amount to our investors and we will, in the future, reconsider our dividend policies, but there are also investment opportunities that are really closely related to our business, that we are going to be evaluating. And I think our past performance shows that Turkcell has a tradition of being very shrewd investors and we took this company in 13 years from zero to this success, and we have net income of 19% for the substantial last quarter. And we have been value players in the -- in Egypt and -- I'm sorry, in Greece and in Saudi Arabia and in Bulgarian Telecom. And actually in Bulgarian Telecom, as you know, we came really close in the finals. And as Warren Buffett says, you don't feel bad about the investment opportunities you miss and because they keep coming and they not strikeouts. So, there, we see a lot of new technology and regional growth opportunities. I hope I answered the question. The second question was about?

It was about Ukraine.

I want to point out that in Ukraine we increased our ARPU substantially in one year. And now we are at $4. And, yes, we are number three player and the first -- number one and number two players have a much higher market share. When they enter the price [flows] they have a lot more to lose and we are gaining market share and we increasing our revenues and we are lowering our EBITDA losses. So, we are really much going in the right direction. We have an increasing number of competence in the management team in Ukraine and we are pleased with the progress. And actually, I think Ukraine is a great example in this high -- a very, very high priced telecom market. We had built a strong presence in Ukraine, as a number-three player in a very good market, very promising market with expenses around 540 million in a year, where true plus being $6 billion for the licenses. So, I think I am very proud of Turkcell's accomplishments in the past and we have continued to this value play going forward.

But as far as the pricing environment is concerned, you don't see the situation in Ukraine as an effective price war?

As I said, I think the other players have a lot more to lose in price competition and I think eventually, they will start acting rationally. And I think, we are the third most extensive network in Ukraine. We are far ahead of number four. And as I said, we are pleased with the progress we are making.

Great. Thanks very much.

Thank you. The next question is from Ben Joseph. Please state your company and then your question.

The company is Nevsky Capital. Just a quick question on the ARPU and subscribers. Obviously, your ARPU is very strong this quarter and the subscribers are sliding out at least from my expectation. I just wonder if you can handle fewer priorities, because I think the target that you mentioned that you intend to have the same number of subscribers this year. Would you be willing to sacrifice that target if you can keep ARPU at such solid levels as we see in the first quarter? That's my first question, please.

Actually, during last quarter announcement, we talked about value play and indicated that we may not add as much subscription this year which is 3.8 million additions over last year, given our value play. So, the bottom line is very important. Subscriber acquisition cost is very important. And we are trying to get to the payers. That said, we will not get involved with the free-SIM card distribution, which is the reality in Q1 in our market. So therefore, our intention is to resolve these premium segments, for mass and segment basis, we will continue to stimulate usage and try to relax our ARPU as much as possible, and we repeated the guidance for the ARPUs today. That's our focus area.

Okay.

I would like to add that, I think, when I compared to our last year's growth, I think it was less than 5% year-over-year of our fiscal year '06. In the first quarter, we registered 14.4% growth under -- in a time when our competition was -- had substantially increased their market introduction, launch activity. Despite all of this, it's pretty hard to maintain level of high marketing activities from our competition. We maintain our customer base and we increased our revenue. And we controlled our cost. And that is why our EBITDA margin increased by 24%. And there are -- a few percentages, as Serkan explained, that are going to remain going forward. We have some savings we have built into our model that are going forward. So, I think it's a great example of Turkcell being very bottom line oriented and I will make sure that we continue this tradition.

Okay. Thank you. Can I just follow up with a -- just a couple of very quick questions, please. Are you able to disclose the gross profit at Astelit this quarter or the gross loss obviously? I think you have disclosed it previously.

Well, as such, we are disclosing the revenue and we've started disclosing EBITDA last quarter and the income.

Okay.

Net losses actually.

Okay. That's fine. And just two more, please. Do you have an estimate of your market share that you've spoken about, people saying duplicates in costs et cetera? Do you still have a market share estimate that you can divide us for this quarter? Or is that less relevant, at the moment, bringing in mind, the multitude of SIM costs that you are saying coming to the market?

In Turkey or Ukraine?

In Turkey.

Within Turkey -- we don't have it, this time.

Are you able to disclose it?

No. We are not.

Okay and then finally on the deferred tax. Obviously, I think there's some deferred tax income that you have been receiving and will continue to receive this year, while such in a tax expense. Will that continue in '08 and '09?

It's hard to give to a churn for the next year and going forward. But for this year, you can take Q4 and Q1 as a quarter trends.

Okay. Thanks very much.

Thank you. The next question is from Mr. Alex Kuznetsov. Please state your company and then your question, sir.

Good afternoon. It's Alex Kuznetsov from Bear Sterns. First of all, let me take you on last operating results. I have a couple of questions. If just at all, could you update us on your 3G rollout plans, please? And have you shifted any of 3G rollout requirements from the regulator and because it may significantly affect your CapEx plans? And finally, do you expect any international operators to apply for the 3G license. And the second question is regarding your EBITDA margin guidance. The fourth quarter EBITDA margin exceeded your previous guidance of 38% for the current year. Are you considering revising your forecast?

Okay, let me start with your first question 3G, the government and the telecommunication authority has announced that 3G licensees are to be offered on May 25th in a tender offer and we are getting ready for that. So, this month in about two weeks and there are four license to be awarded, and we plan to get one of them. And, about at this time, I do not know about what other operator -- who are the operators or which other operators are interested in that. I don't have information on that front. And what was the other question?

EBITDA margin guidance?

EBITDA margin guidance I think we are sticking with the 38% for the year.

So, you still keep the same guidance?

Yes. We decided not to change the guidance. Although we have -- I know that in the first quarter, our EBITDA margin was 40%. We are encouraged by that. But, as I said we intend to protect our important customers, so we are sticking with the 38% guidance.

And could you also comment on the 3G rollout requirement please?

Requirements for this year, our CapEx as we communicated before is about $480 million and $80 million of this is about 3G.

There are some coverage requirements, but as historically we have done, we have been usually above these requirements, investing upon. So, similarly we don't see any challenges in that area.

May I ask you to highlight major points from those requirements, if you don't mind?

I don't have it in front of me, Alex will give it to you, I think later. There are some two years and five years certain operational coverage requirements that are not really significant from a commercial thinking of the company perspective. So, it is not an altering situation for us, but we will give it for you later.

Thank you very much.

Thank you. The next question is from Anna Bossong. Please state your company and then your questions.

Hi, CA-IB. I just wanted to have some clarification on the Turkish situation, with the net adds of 484,000. You have been saying that it's a good performance as to previous years but I had my figures showing 843,000 net adds in Turkey in the first quarter last year. So, how am I misunderstanding that? And secondly, I just wondered if you could tell us the postpaid subscriber numbers in Ukraine at present? That will be very helpful. Thank you.

About the first question, our comment about the best first quarter was the gross additions, new subscribers, and although -- despite we had slow January because of incentive programs, we still had the first best quarter in terms of gross adds.

Thank you. That's great.

On Ukraine, as practicing that market, there are actually no postpaid customers that we know of, as definition of EMO subscribers. But there are contract subscribers on the prepaid side, where actually upfront payment requirements are slight, and that is a very small portion at this time. We have been focusing in increasing those numbers as well.

Can you give us an idea of what ARPUs you are getting in that segment?

On a segment basis, we don't have that disclosure. But as you know, the active and not total ARPUs can be found in the presentation.

Okay. Thank you very much.

Thank you.

Thank you. The next question is from Deepak Krishna. Please state your company and then your question.

Hi, Deepak from Nomura here. Good afternoon. Just a single question. The tax rate for this quarter, I think, has come down significantly from last quarter or last year. I guess that's because the tax rate has decreased to 20%. Do you think we can take this quarter's 27% effective rate as the indicator for the entire year?

Actually, I am looking at the increase in corporate tax, it's coming from the corporate tax portion that we are provisioning for this year. Revenue -- the current tax portion, it's similar to last quarter. And in order to explain the expectation for this year, let me to explain the calculation method of this corporate tax provision for us. We are provisioning the corporate tax amount based on the given tax yielding from projections. Therefore since they are projecting higher taxable income this year, corporate tax rate and tax provisions in Q1 is higher than the provisions announced last year. For this year, you can use a different model, with similar corporate tax provision amount for the forthcoming quarters. However, please keep in mind that we are going to update on our provisioning on a quarterly basis, based on the actualization of the taxable income.

Okay, thank you. Just one more question. The share of investees, the [mix in] Fintur operations, this quarter, it has grown around 12%. Can you give us an estimate of how you see it going forward?

As far as I can understand, you are asking the level of the income coming from Fintur, the trends for the income. Am I right?

Yes.

Okay. It was $22 million this quarter. You know, that there is also some seasonality in those markets. Therefore, for each quarter, you can compare your expectations based on last year's same quarter, because there will be some seasonality going forward.

Okay. Thank you.

Thank you. [OPERATOR INSTRUCTIONS]. We have follow-up question from Mr. Alex Kuznetsov. Please go ahead with your question.

Hello, good afternoon. I have two more follow-up questions. First of all, is there any progress towards restoring the fungibility of Turkcell's ADRs and do you expect the fungibility to be restored anytime soon? And, second question is regarding to your ARPU trend, and it's reported in the first quarter. ARPU trend was quite stronger at the beginning of the year. Is it [relative] to ask if you expect any significant changes in the second quarter of 2007?

As for the ADRs, as JP Morgan is our ADR program manager. So, we are currently working on that workable solution for opening of the program. I cannot give you a timeline. But, there is work around the current regulation, that we are quite keen on working with JP to make sure that the program is back to where it was before..

As for the ARPU, as you know there is seasonality in our market, so we do expect Q2 and Q3 to be better. And in average terms, we guided the market as flat to a slight decline of ARPU, given 13% depreciation of lira against USD assumption we have, for our business plan. We -- to what extent that it will be achieved as for the depreciation of lira against USD, first quarter was better than expected. And in TL terms, on blended basis ARPU should increase, that's our expectation for 2007.

And it's one of the things that when we compare second quarter '07 and first quarter '07, with respective quarters of 2006. We are likely to see even appreciation of the Turkish currency, which may give additional boost to your ARPU?

Well, if that's your assumption and you realize, then that's great. We will see.

Thank you very much.

Thanks.

Thank you. The next question we have is from Bengt Moelleryd. Please state your question and then your company.

Hi, it's Bengt Moelleryd from Standard & Poor Equity Research in Stockholm. I am just curious on your view on Fintur and also the -- recently their CEO left the company there. And with regard to these four markets here in expansion and also the level of competition, I understand in terms of high price competition in Kazakhstan, for example, Kazakh Telecom, gaining new license. So, what is your view upon the Fintur operation in the four countries? Thank you.

Yeah, you are right. The Vice President of TeliaSonera, responsible for Fintur operations has resigned and he was very knowledgeable, very experienced businessman in the telecom industry and in the area. So, I think he is going to be missed. And I am sure that TeliaSonera is going to find somebody else who will be as capable. And I think he resigned in May.

Yes, Fintur has competition. But as you know, they delivered 38% growth in net income year-over-year. And those markets have growth opportunities as well. Yes, there's increased competition, but we also know that TeliaSonera has a controlled interest, in that we have 42%, we are a more silent investors.

Okay. What, kind of, expectations you have on profitability growth going forward, now that the market penetration is coming up and the level of competition is increasing there? What amount of growth levels do you expect in delivering to your numbers going forward?

We are not actually guiding the market in this area, as TeliaSonera leads the guidance and they are majority and from general shareholders' perspectives -- expectation, we expect the growth to continue. But we can't comment on the level of growth expectations.

And if I may follow-up here, when it comes to further expansion, the earlier question regarding your ambition as to grow in the region. How is the overlap there between Turkcell's growth ambition and Fintur's, as a result for growth in the region there?

There is no overlap. There's a very common understanding, both at Turkcell and Fintur Broad in regards to exploration of expansion through Turkcell in certain areas and possibly certain areas in the region. We haven't had any difficulty as far as establishing understanding.

Thank you very much.

Thanks.

Thank you. The next question is from Mr. Osman Memisoglu. Please state your company name and then your question.

Hi. This is Osman Memisoglu from Finans Invest. Congratulations on a great quarter. I have two questions on the cost side. On the notes to financials that you posted on to the Turkish Stock Exchange, the variable costs, specifically the ongoing license fee paid seems to have decreased in terms of percentage of revenues by about 1%. Was there a specific reason for that? And again on the cost side, going forward, now that your main competitor has finalized its rebranding process at the end of March, do you expect to spend more in sales and marketing? Thank you.

For the first question, if you compare the Treasury Share expenses compared to last Q1 of 2006. The reason behind the decrease is the definition change in the Treasury Share calculation, based on revision of the license agreement. If you compare the Treasury Share expenses to Q4 last year, the decrease is basically because there are certain revenue items in Turkcell P&L, which are not subject to Treasury Share. That was the basic reason of decrease in Treasury Share expenses in Q1 compared to Q4 last year.

So there was no one-off adjustment or anything like that that made a big difference in the quarter, just the way the revenues are, I guess, recognized?

Yes, you can say that.

Okay. Thank you.

Thank you, sir.

As per the second question, Osman, the second question on the S&M expenses, we haven't guided the market on specific with the S&M expenses, but what we have said is that percentage of revenue at similar level of cost base we are looking at for this year in comparison to last year. So, since we are extracting revenue growth, in nominal terms, we can spend more and will be relatively based on dynamics, but we are not revising our budget, we are quite inline with our expectations.

Great. Thank you.

Thank you.

Thank you. [OPERATOR INSTRUCTIONS]. There appear to be no further questions at this time. Sir, would you like to continue.

Thank you very much. At this time we can close the conference call. Thank you for participating. Please, on the follow-up questions call directly, let me remind you that this audio recording of this conference call will be available for you for next two weeks. Thank you very much. Bye-bye.

Thank you and this concludes the first quarter 2007 results announcement. Thank you for participating and you may now disconnect.